The interviewee should calculate the NPV of the project.
The immediate cost of acquiring the panda is $2.4 million (the
consultant’s fee is a sunk cost and should not be considered in this analysis).
Assuming the zoo will have a similar increased attendance as San
Diego, it is likely to see an increase in attendance of 12% on 600,000 people
= 72,000, or 36,000 adults and 36,000 children at the 50/50 ratio. This
translates into an increase in revenue of (36,000 * $15) + (36,000 * $10) =
$900,000. The maintenance each year is $300,000 and so the net impact on
earnings each year is a gain of $600,000.
Present value calculation:
So the NPV is just positive by $100,000. This provides evidence in favor of
acquiring the panda. The interviewee should summarize the case by
committing to a position and backing it up with evidence. Given a positive
NPV there exist strong grounds to acquire the panda.
Check out some other management consulting interview cases.
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